Richard Smith

The persistence of pervasive economic irrationality in the face of reforms designed to rationalize China's economy has posed difficult problems for market socialist theory and strategy. In the late 1970s, China's pragmatic leaders concluded that the key to reforming China's stultifying bureaucratic system was to be found in a broad decentralization and marketization of the economy--within the context, crucially, of continued state planning and ownership of the major means of production. They aimed to use the market to correct the plan and especially to rationalize state industrial production. I hypothesized that this strategy was inherently contradictory and doomed, because it failed to take into account the requirements of bureaucratic reproduction. Since the ruling bureaucracy does not own the economy privately as capitalists, but collectively through their ownership of the state, they could not really let market forces prevail without cutting themselves out of the economy. Thus, I hypothesized, the reformers would likely undermine and defeat their own reforms. I researched the effects of reforms in industry and agriculture over the decade 1978-88. I found that the attempt to enforce planning and market reforms, simultaneously, typically produced results that were the opposite of the reformers' intentions. I found no broad shift to specialization, to production for exchange, to competition-driven efficiency--except at the periphery. Instead, managers still seek to maximize costs (inputs) not profits, they maximize wages, they invest without regard for cost (efficiency) or need (the market). Such "irrational" behavior I found to be logical within its own terms, because there still are no market penalties, because the reformers resist bringing in fundamental reforms (decontrol of labor, capital, resource allocation) which are essential to make the market work--but which threaten bureaucratic surplus extraction and class domination. Confronted with growing irrationality, falling productivity, rising inflation and debt, the reformers postponed further reforms, and instead, recentralized the economy at the end of 1988, thus effectively abandoning their own reform project. I concluded that, pace the theorists of market socialism, the problems of the system are systemic, intractable, and irresolvable within the existing system of property and class relations.

 

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